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The Korea Federation of Banks met with some 300 construction industry officials on November 18 to promote a liquidity support program provided by Daejudan, a group of creditors. The Daejudan program is part of a series of measures devised by the government, which has also called on banks to offer financial relief to support ailing construction companies for fear that their collapse will have a detrimental effect on the rest of the economy. However, some say the government should provide a clear set of guidelines for how the construction sector could be restructured or even whether this is something that will be required.

The KFB said there is no deadline for application to the liquidity support program, and companies with speculative ratings can participate in the program, depending on what the creditors say. Those who participate in the program will be able to defer their debt repayments by one year and can also receive new loans. the KFB said.

However, some construction companies are concerned that participation in the Daejudan program will result in outside interference with their management practices. The program does not require that they sell their assets or sign a memorandum of understanding.

The FSC and the government seem to be pressuring construction companies to participate in the Daejudan program, however they have said nothing about the restructuring that the companies that join the program must undertake.

On November 17, FSC Chairman Jun Kwang-woo encouraged the construction companies to participate in the Daejudan program, saying that because the Daejudan program is aimed at improving a company’s financial structure, companies that do not participate in the program will be at higher risk of insolvency.

A researcher at a securities firm said, “Has the government presented a specific guideline or a plan to restructure builders, other than the idea that it will determine which companies are in danger or not. It basically means the government has no will to restructure builders.”

In fact, a high-ranking official at the FSC said, “Although the government chooses which companies will survive and which won’t, it still needs to support companies teetering on the brink of bankruptcy. If construction companies collapse, how many jobs will be lost

and how much impact will it have on the economy?” This indicates the government is planning to rescue as many construction companies as it can to avoid the negative effects on the economy and employment.

However, there are growing concerns that providing financial support to the construction companies without requiring that they restructure will add to the worsening conditions in the housing sector as there are no signs that the glut of unsold apartments can be sold amid the sharp economic downturn at home and abroad.

Gang Gyeong-hoon, a professor of business administration at Dongguk University, said, “This isn’t a situation in which the economic growth rate falls just a bit, but one in which bubbles are bursting across the globe. The government’s attitude, which appears to be that we will be able to move forward without bursting the bubbles, is only exacerbating the uncertainty in the financial sector and increasing the number of potential defaults.”

Oh Suk-tae, an economist at Citibank Korea, said, “If the government continues to protect construction companies, foreign investors will have little choice but to extract their funds from local banks in the midst of the fragile financial conditions. In the end, the government’s attempt to protect insolvent builders will diminish the foreign reserve.”

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